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When Do I Stop Trading?

Ryan Mallory — Mon, 06 Jul 2009 17:03:00 +0000

Let's face it, you are not going to have a good day trading stocks every day. It just doesn't happen, and those who say it does are nothing but a bunch of frauds. Every day is its own riddle to unravel and mystery to solve, and sometimes you just aren't going to be on top of your game. One of the biggest keys to successful trading, is knowing when you are having "one of those days" and shut everything down and simply stop trading. However, that can be the hardest thing to recognize and know, because every trade is easy to believe will be the one that sets the record straight, turn a losing day into a profitable one, and reverse a myriad of bad trades.

I've had my share of bad trading days, and have had to learn the hard way over the years, that when trades are not working in my favor, I'm best off to simply call it quits. Tomorrow will come, and will be a new opportunity for trading. Perhaps my mind will be a bit clearer, and I will be fresher, and have a better take on the market. Emotions whether we choose to believe it or not can and will distort human logic. If one is going through some tough and turbulent financial times, or if there is a death in a family (I've actually closed out a trade during a funeral on my iPhone - Bad Ryan, I know) then our sense of logic and understanding can be greatly skewed. Its best that if one is under this type of stress, to just refrain from trading all together as you are much more prone to add insult to injury (I know I am!).

So knowing that I am prone to bad trading days, as I hope everyone else realizes about themselves too, I have put in daily, weekly, and monthly trading guards that tell me when enough is enough.

On a daily basis, I will stop trading all together if I am down 1R or more (click here to better understand "R" and Risk). That means I may be down .5R but then trade again and then lose .8R, at that point I am down a total of 1.3R which breaks the stop-trading barrier and I am done for the day. On the other hand, I may trade just once, lose a full 1R and as a result I am done also.

On a weekly basis, If I lose more than 3R, then I am done for the week. I'm not going to allow one week, where my trading is apparently WAY OFF to wipe out months of positive returns, or put me in such a hole next week, that it takes a couple of weeks just to get back on solid ground. And then finally, there is a monthly stop-trading, in which if I am down more than 10R in a given month (which hasn't happened to-date), I will wait until the next month, spend the time to evaluate my trading tendencies, review past trades more thoroughly, and make the necessary changes that are needed. Usually these types of changes have to do with my mindset, not so much my trading strategy.

So there you have it, these are solid guidelines I believe can help you out in your own trading endeavors, to help you preserve capital, and keep you in this game for the long run.

Will the Market Recover This Week?

Ryan Mallory — Mon, 06 Jul 2009 02:21:00 +0000

Last three weeks we have been finishing in the red. Will this week be any different? For beginners, the DOW look like it is on the brink of a MAJOR breakdown...and I mean major. The obvious head and shoulders pattern that has emerged is now on the verge of being confirmed. Watch for a close below the neckline to initiate a short position. The other three indices could easily break their moving averages in a heart beat if we have another down day like we had on Friday.

I've updated the stock screens and the market barometer. Definitely worth taking a look at considering what we have seen out of the market in recent weeks. Couple of quick thoughts on the screens, for quite a few months now, our short screen - "Watch Out Below" has barely seen any companies pop up on its radar, and now we have a plethora of companies on this screen I use for shorting. Also, some of our bullish screens are seeing an abundance of companies showing up - so much so, I am having to tighten dramatically the filter settings of my bullish screens. This could be a great contrarian indicator that the market is indeed getting to top-heavy.

Hope everyone has a great week and be sure to follow us on our day-trades and live portfolio!

Good Question on My QQQQ Short Trade

Ryan Mallory — Thu, 02 Jul 2009 02:48:00 +0000

I received an excellent question from one of our loyal members in regards to the short-trade I made in QQQQ today and it is as follows:

I am having a hard time with the math on how you came up with a $212 profit using a $50,000 account with your short in QQQQ today. It would take 1927 shares with the .11 gain you stopped out at. With a $36.69 entry you would of had to commit over $70K to the trade. The only way you could make this trade was using a margin account.

So here is the breakdown. The one part of this question that has to be answered right off the bat, whether or not I am using margin on my trades, and the answer is - Absolutely! While I don't recommend going into margin on swing-trades, for day-trading it is a huge benefit and carries no where near as much risk - assuming it is used correctly. Because I have already pre-determined how much I am willing to lose on a trade, I want to buy as many shares as possible that will allow me to lose no more, and no less than the amount that I determine as being "R".

For today's trade, my "R" represented 0.5% of my total portfolio value, or $250. If I have to go into margin to buy enough shares to equal a $250/0.5% Risk scenario on my trade, then so be it. In fact, I want to have as large of a position as possible on the trade. That is why I go after the tight stop-losses, because I want to turnover my capital as quickly as possible, just like a business wants to turnover its inventory.

So on today's short-trade on QQQQ I purchased 2075 shares which $76,131.75 on one trade or 152% of my portfolio value. Which isn't any major concern for me because I have a stop order in on my position that if it hits 36.81 then I have lost $250 or 0.5% of my portfolio and I am out of the trade all together.

Second question is how did I come away with $212 on the trade, here is the breakdown: $0.11/share * 2075 = $228.25 - $16 in commission fees ($8 dollars for each side of the trade) gives me $212.25, which is rounded down for $212. The SEC fees won't be calculated until tomorrow, at which time I will factor into the portfolio value.

Margin is very important in day-trading - because you are NEVER holding the trade overnight, your only risk is the dollar amount between the entry price and the stop-loss (always, always use a stop-loss in day-trading) multiplied by the number of shares bought. Remember my concern is with "R" the amount I'm risking, not how much into margin I am going.

With margin you get 2x your portfolio value for any one trade, and you can trade up to 4x of your portfolio value in any one day (that's your total buying power).

Hopefully this explains things for everyone. We will use margin in our day-trades (not so much in our overnight positions or swing-trades). This is what allows us to bring in such descent gains on price moves that aren't considered all that significant. Give me a shout if this doesn't clear things up for you and I'll try to explain it even more. For more on understanding "R" and the Risk Reward Ratio, check out this article.

Quick Trade in QQQQ & Market Analysis

Ryan Mallory — Wed, 01 Jul 2009 22:34:00 +0000

Let it Rip Folks! We went live with the SharePlanner Portfolio today - a live account that we show the profits, the losses, where we get in at, and where we get out at - there is nothing to hide! We also take into account our trading commissions and SEC Taxes (not fees - TAXES) into everyone of our trades. We have a Covestor account that we link ourselves up to, so that if you don't believe us, you can have Covestor provided you with the third party verification, so that you know what we saying is indeed true. We're not propelled to do this for any other reason but to convince you with legitimate proof that our style and method of trading is worth paying attention to and learning from, and even doing on your own.You can also sign up to receive our day-trade alerts for free by signing up and becoming a member (that is FREE too) and you'll receive the email alerting you to what I am putting my orders in for. Then you can follow us via Twitter for when we raise our stop-losses and when we get out of our positions.

We shorted QQQQ this afternoon after we saw a nice bit of consolidation form. Initially we were going to go long on the ETF, but when support fell through, we immediately switched course and shorted it instead. That's right, in this market you have to be flexible enough to change directions when you have to and we did. Our only regret, is that we got out too early! The stock broke down and we were sitting on descent gains.

But if we would have waited, like I'm sure some of you did, we would have made a major profit riding the position into the close. But today's over with and we made $212 on the trade (after commissions and taxes). You can count on me to be scouring the charts tomorrow to find the next trade setup.

In regards to the general market, it's that time of the week that we go over what we are seeing from the major indices. The market came out of the gates with a ton of price momentum, but with little volume. Some of that can be accredited to the fact that we are quickly approaching the July 4th weekend, and a lot of your 'Wall Street Boys' are already making their way up to the Hamptons - so we expect volume to dismal somewhat. But the entire summer has been this way, and until their is a major catalyst driving this market, I think it is fair to say we probably won't seen a lot of aggressive buying (or selling) and probably remain channel bound until then.

The S&P seems to be forming the eye-catching head-and-shoulders patter, that is very alarming and could be a precursor to another wave of selling. Either way, we will be prepared to take advantage of it.

Remember - July 3rd the U.S. Markets are closed, so take some time and spend it with your family and friends, grill up a couple of burgers, and don't forget that the United States still remains the greatest country this world has every known! God Bless You All!

Here's the NASDAQ and S&P Charts...

Not a Bad Trade in SPY

Ryan Mallory — Wed, 01 Jul 2009 03:14:00 +0000

Another video podcast posted tonight from the trade made in SPY earlier today. It wasn't an overly exciting trade by any means but the profit opportunity was there and should have been seized upon. There was also some nice trading patterns that is worth mentioning from the intraday double bottom to the doji hammer that formed our setup. It's worth the watch.

Also, we are going live with our trading portfolio tomorrow (July 1st) - so we will now be able to trade right along side of you!

Happy Trading!

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Why I Don't Watch CNBC...Ever!

Ryan Mallory — Mon, 29 Jun 2009 11:19:00 +0000

In case you were wondering where do I get my market information from, or who do I rely on for my the daily happenings on what's going on in Wall Street, the truth of the matter is, I don't tune into, or listen to anyone. Frankly, I couldn't tell you when the last time I watched CNBC, the Fox Business Channel, read the Wall Street Journal, or picked up an issue of Barron's. When it comes to Jim Cramer, I think it is almost insanity to even listen to him for even one minute. However, during the daily 5% - 10% sell-offs we were seeing in the broader market in 2008 and early 2009, I did find myself tuning in for the humor in watching him completely melt down, and explain why his latest bottom call wasn't really a bottom call (from what I heard he called 3,235 bottoms during 2008 alone!).

So where do I get my information from? Nowhere really. I will go to Yahoo's Finance page on a daily basis to find out about a particular stock (i.e. what they do, their ratios, etc.), or find out what the news is that's driving the market. They also have a nice little section on the left hand side of the page provided by Briefing.com (pretty good website actually) that gives updates at about every 30 minutes or so on the what's driving the market, what sectors or industries are performing well, what stocks are having the most effect on the market, and who just released their earnings etc. I will also follow a couple of blogs every once in a while such as Kirk Report (every couple of weeks or so), or TraderMike (maybe once a week), but that's about it.

Most of the information that I get comes from reading charts, running screens, and frankly PRICE and VOLUME. This is what I consider the two most important elements in the stock market, and frankly all of the clowns and goons that rant and rave on tv and get all excited about nothing, could do themselves a lot of justice if they simply focused on the basics. By doing so, life becomes much more quieter, relaxing, and simply enjoyable.

My head has to be clear of doubts and conflicting ideas. I must be able to come up with my own understanding of the the market, and the stocks within it, without letting doubts, courtesy of CNBC, creep in. I can't try to take what Jim Cramer says, and mesh it with what Fox Business says, and combine that with the eternal optimists at Motley Fool say (which has become nothing more than a glorified infomercial of late), and actually expect to have a sound analysis or rationale for my trades and general understanding of market conditions. If I tried to do that, I'd probably end up in one of those places where all the walls are white and people walk around like zombies or I'd be popping Xanax pills like there was no tomorrow. Simply put, I can't allow my thoughts and opinions to be distorted by every Tom, Dick, and Harry that think they are the ultimate authority on the market. If I am going to be wrong on a trade (or two), and believe me that happens all the time, I don't want it to be because someone else told me so on television or because Joe Schmo' in the WSJ said so. I want to be wrong on my own accord, so I have no one else to blame but myself.

By the way have you ever wondered why these people argue with each other on CNBC? What does it honestly matter what another person thinks? It's not like they are arguing over the superiority of the Miami Dolphins against all other football teams! You don't have to take their advice or trade on their opinions and no one is forcing you to. If they are wrong, the market will soon show them the error of their ways, and it will probably hurt them financially too (assuming those dudes actually know how to place a trade - which is somewhat doubtful). So let them have their opinions, I could careless what any of them have to say, and highly doubt I ever will. Heck, after reading this article, you may decide "I don't need SharePlanner anymore - I'm going to make it on my own!" and you have every right to do so.

Remember we will always be unfiltered, honest and totally transparent. Believe me there are times when doing so is painful. For example, on our swing trades we never got completely behind the rally that started in March - doubtful most of the time of its legitimacy and we weren't able to capitalize on it like we should have - but we aren't ashamed to admit that, and guess what - we'll make up for it at the end of the day. But these wannabes on all these network stations and through the written media never admit their wrongs, they change their opinions daily, and are never held accountable for anything they say or do.

So Turn Off CNBC and Turn On Cosby Show Re-Runs!!!

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The TSM Swing Trade

Matt Walters — Sat, 27 Jun 2009 16:31:00 +0000

For starters on my swing trades I screen fundamentally sound companies and then concentrate on price support and resistance as the primary technical indicators. After I find something of interest I will apply some other indicators to disprove a theory, or back it up. As a rule of thumb I always wait for a trade to come to me, and never go chasing after it without any exit strategy in place.

Taking a quick look at our trade in TSM you will see where and why I felt like the risk/reward was in my favor if I could get in on a pullback just above the 9.10 -9.15 range. In mid April TSM report much better than expected earnings (Confirming that fundamentally the company was OK) and gapped up from the $9 range to $12 in a matter of a few days. I had the stock on my watch list prior to this move and was actually thinking of initiating a short position knowing that in this environment the market will fill a gap just as fast as it was created! However, I decided that the risk reward of that trade was 50/50 and therefore I would wait for a better long or short entry in the future. After some range bound low volume trading, the stock sold off in mid June to a level where the support levels setup up for a good trade.

Looking at support levels I recognized that if I could get an entry at a secondary support level just above $9, I could then place my stop just below primary support ( 200 Day Moving Average ) and only risk 8% on the trade. Other indicator supported the trade as the stochastic signaled a oversold condition, and volume spiked relative to the prior few weeks trading sessions, meaning there might be some sort of short term capitulation in the share price. Lastly, the TSM dividend was approaching 5% and this would provide further downward residence as it has in the past.

Therefore, I place my limit order to buy at $9.14 with a stop loss at 8.40. I am anticipating that TSM can rally to around the 10.70 level before it meets resistance from the 50 DMA. Hence, my initial target is just below that at 10.65. Stay tuned as I may adjust my stop loss upward to lock some profits depending upon general market conditions.

Market Analysis and a Trade in RIMM

Ryan Mallory — Wed, 24 Jun 2009 21:49:00 +0000

Things continue to look gloomier for the market as the bulls continue to find ways to lose control of direction. While there has been no major breach of critical support levels, the S&P and especially the DOW is getting awfully close. With that said, I'd recommend tightening your stop-losses where possible in light of recent market apathy on behalf of the bulls.

Now on to more exciting stuff...We're working on a new feature for the site that would include adding a real trading portfolio for you to track us against and employ the services of a company to audit our results each day so that you never worry whether our results are legit or not; because lets face it, any schmo' can say they have made 10,000% in the past year on their website and not have to actually show their results. Well, in order to provide you with greater confidence in our transparency and honesty, we are going to provide a portfolio for our day-trades with all of the transactions including the net gains after commissions and SEC fees along with the current portfolio value so that you know that our trades aren't being altered or fabricated in any way. So stay tuned for that - we're looking at a launch date of probably July 1, 2009 - the second half of 2009.

Speaking of our day-trades, if you jumped on board with me today on Research in Motion (RIMM) you probably didn't fare too well, and neither did I (got knocked out within an hour on our original stop-loss) This week has indeed been a frustrating one for me and I'm looking to get back on top of my game come tomorrow morning. The main area that I have been showing some problems with is probably being too conservative with the trades - trying not to lose on any trade at all (which usually leads to more losses anyways). Instead, I need to be a little more daring with my trades, and not just take the safe trade all the time (which is usually not all that safe).

Today in RIMM was a perfect example, I didn't want to go against the strength the market the was showing in the early going and take a short position in RIMM (which would have been a huge winner for me had I). Instead, I went long, when the market was clearly turning over. I've done that a few times of late this past month. So there is an area of improvement for me to do better at. Your thoughts?

Here's the NASDAQ and S&P charts...

FOMC Statement 6-24-09

Ryan Mallory — Wed, 24 Jun 2009 19:51:00 +0000

Here is today's FOMC Statement...

Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

My Opinion of ThinkorSwim

Ryan Mallory — Wed, 24 Jun 2009 01:58:00 +0000

A popular question that I get quite a bit from the traders who follow this blog, is what brokerage firm do we use for our trading and why. SharePlanner trades with thinkorswim (short name is TOS). And I have to say that I am very pleased with their service. They are by far the best brokerage firm that I have used to date. In the past I have used Bank of America, TradeStation, TD Ameritrade and OptionsXpress and simply put thinkorswim outdoes them all. Now I'm not saying this because I am going to be incentivized for doing so. I have no contract with them (at least not of this writing) and I am under no obligation to do so. I am simply just trying to provide you with information that will help you trade better in the stock market.

Recently thinkorswim was bought out by TD Ameritrade, which raised a lot of concerns for me. TOS is what I call a rogue brokerage firm - they are very non-traditional, and are a great alternative for those who are tired of being unappreciated by the larger firms out there. So now the question begs whether they are being acquired only to be sucked up in to TD Ameritrade and to be forgotten forever or will they let them stand alone as a separate entity. So far they have heard the concerns of the TOS traders and they are keeping both firms separate including the commissions structures.

Here is a letter that I received recently from TOS in regards to the acquisition and the steps that are being taken:

Today TD AMERITRADE announces the close of the acquisition of thinkorswim. You've probably seen a few changes since the deal was first announced five months ago.

Four software releases packed with enhancements including single-click complex order routing for active traders, complete flexibility on chart windows, over 10 new futures and futures options products, spreads for futures options, new risk vs return analytics, myTrade Twitter and order routing integration, fast tab access, and lots, lots more, with more coming soon.

Then thinkorswim Advisors introduced live trading sessions in the Red Option swimCoach online seminars, taught thousands of students at 50+ free seminars around the country, and have standing-room only presentations at trade shows.

Does that sound like a company that's "disappearing"? Didn't think so.

The bottom line is that what thinkorswim is best at-delivering powerful, user-friendly trading technology, supporting active traders over a wide range of products, and teaching the world a smarter way to seek risk management and spot potential opportunities-isn't going anywhere. In fact, we're pushing further and faster than we ever have.

What TD AMERITRADE brings to the table are great account management tools, strong customer service skills [I doubt that], and some features that help fill in the "gaps" of the thinkorswim platforms. The goal of the acquisition is to redefine and set a new standard for the online brokerage industry. That's what thinkorswim has always been about.

The plan is that you'll continue to trade on your favorite thinkorswim platform, at your current commission rates, and talk to the same people (some new ones, too) when you need help. All you have to do is find your next trade.

Now the letter doesn't give any assurances that they won't be full merged into the TDAmeritrade platform - hopefully not. With TD I was on the phone with them constantly questioning the execution of my orders, but with TOS I have yet to ever have to call them about anything questionable.

Another benefit to using TOS is the free software platform and the free web-based trading platform - neither one will you every have to pay a fee for. Their commission structure for stocks are two fold: pay 0.015 per share with a $5 minimum or trade for a $9.99 flat fee. If you make more than 40 trades or 20 round trips in a given month they will also provide you with a $40 discount to help offset your internet bill - which I get every month!

One more praise on TOS' behalf, and I recommend you trying if you trade a lot of shares and make a lot of trades: negotiate your commission rate. At one point, because I trade a large dollar amount with every trade, I was getting killed on my commissions which could get as high as $30-$60 round trip. You're talking about a lot of money just to place a trade. And the reason why I was paying so much was because my style of trading requires that I use "stop-orders" which don't qualify for the flat fee of $9.99. I was fed up, because it was eating into my profits so I finally called TOS up, thinking I was going to have to rip into them but before I could hardly say a word, they offered my $8/trade no matter the trade type. The phone call lasted probably all of two minutes! So I am definitely loyal to TOS and always will be unless they get flaky in the TD acquisition.

So all in all, TOS does everything they can to cater to the trader; their software platform is by far one of the bests that I have ever used and their executions are great too. But I'm keeping a close eye on them during this transition period and if TD tries to goof them up like they did with their own company (I traded with TD Ameritrade before switching to TOS), then I will hit the road looking for another brokerage firm to give my business to.